Effective January 1, 2020 a new rule updates the regulations governing executive, administrative, professional, and highly compensated employees who are entitled to the minimum wage and overtime pay protections of the federal Fair Labor Standards Act (FLSA).
The current federal rules* provide an exemption from both the minimum wage and overtime pay requirements of the FLSA for bona fide executive, administrative, and professional employees who meet certain tests regarding their job duties and who are paid on a salary basis at not less than $455 per week ($23,660 per year). “Highly compensated employees” (HCEs) who are paid total annual compensation of $100,000 or more and meet certain other conditions are also deemed exempt.
The new rule updates the salary and compensation levels needed for executive, administrative, professional, and highly compensated employees to be exempt.
In particular, the final rule:
- Raises the salary threshold from $455 a week to $684 per week (or $35,568 annually);
- Increases the HCE total annual compensation level to $107,432 annually; and
- Amends the regulations to allow employers to use nondiscretionary bonuses, incentives, and commissions to satisfy up to 10% of the new standard salary level as long as additional requirements are met, including making the payments on an annual or more frequent basis.
Unlike the Obama-era rule that was subsequently blocked, the new proposed rule does not establish a mechanism for automatically updating the salary and compensation levels. Instead, the DOL has indicated that it intends to update the earnings thresholds more regularly.
Though these salary increases are not as significant as the Obama-era rule, it is still possible that the DOL will face legal challenges. HR Works will continue to keep clients updated and will provide recommendations for how to prepare for these changes in next month’s Focus.
*Note: When both the FLSA and a state law apply, the employee is entitled to the most favorable provisions of each law.